The US Treasury Wants To Monitor Fintech-Bank Connections
In order to avoid abuses and safeguard customers, the US Department of the Treasury has recommended for more oversight of fintech-bank relationships.
According to a recent Treasury research, as the concentration of federally insured banks grows, fintech companies are entering the key consumer finance industries of deposits, payments, and credit, hence increasing competitive pressure.
While these non-bank entrants provide Americans with more options, better services, and cheaper costs, they are not subject to the same regulation as conventional banks.
However, since established firms are often essential to the infrastructure that enables the new business models of fintechs, there is a great deal of contact between the two groups, both as rivals and as collaborators.
The paper provides a number of recommendations for addressing the complex interactions between banks and fintechs.
“Regulators should provide a clear and consistently applied supervisory framework for bank-fintech relationships. A bank-fintech relationship that delivers consumer financial services provided by an insured depository institution (IDI) must operate in compliance with the laws, regulations, and risk management standards applicable to the IDI,” says the report.
In addition, watchdogs should “robustly” monitor the compliance of bank-fintech lending partnerships with consumer protection legislation.
Regulators should also promote innovations in consumer credit underwriting that raise credit visibility, decrease bias, and extend lending to underserved households in a responsible manner.
US Secretary of the Treasury Janet Yellen says: “While non-bank firms’ entrance into core consumer finance markets has increased competition and innovation, it has not come without additional risks to consumer protection and market integrity.”
“This report lays out actions that would maintain fair, transparent, and competitive markets while encouraging responsible innovation that benefits consumers.”
